How Does a Home Warranty Work?

Types of Home Owner Warranties

Homeowner warranties are basically service contracts that can be purchased, for a yearly or monthly fee, that cover repair or replacement of many of your home's appliances and systems. There are two basic types of homeowner warranties: the builder's warranty on newly constructed homes and the homeowner warranties for existing homes. The builder's warranty varies from state to state as to what they require, and the existing home warranty is not required but can be purchased by the buyer or the seller at the time of settlement, or purchased by a homeowner at any time.

The Builder's Warranty

Some states require the builder to provide the new homeowner with a warranty, and in each state the requirements differ. For a builder to belong to a warranty program, it must submit financial and technical information to the program and be approved. The company then pays a one-time fee with each sale of a home for the warranty. The warranty covers certain structural components and systems of the home for a period of up to 10 years. Normally you get the policy at the settlement for your home and if you have a problem, you call the warranty company. Many of these policies have wording that excludes some possible claims. In order for you to know exactly what you will be covered for before it is too late, ask for a copy of the warranty early in your negotiations for the home. If the builder does not offer a warranty, it will be required by the county and state to provide a Certificate of Occupancy before the sale. This just means the home was inspected by the local building inspector to be up to code and found to be habitable. This will not help you if you find problems after the settlement. It would be in your best interest to purchase your own homeowner's warranty for existing homes, especially if you are a first-time homeowner who doesn't have much experience with repairs.

The Existing Home Warranty

There are many existing home warranty companies, and they offer a variety of policies. The most common policy covers most of your appliances and your home's systems, such as plumbing, electrical and heating and air conditioning. You can expand the policy to your needs if, for example, you have a pool. As with all warranty programs, you will want to read them down to the fine print before you purchase one. Make sure you know what they require of you as far as maintenance for your claim to be legitimate. Sometimes the seller of a home will offer a warranty along with the sale. You can modify this policy once you buy the home if you think you need more coverage. All of these policies are renewable each year and can be modified at any time. The warranty company will send out a renewal far enough ahead of when the policy expires for you to decide whether the coverage was the right fit for you.